Chancellor Jeremy Hunt faces a worrying economic backdrop when he delivers his autumn statement to the nation on Wednesday.
Economic forecasts show growth stagnating and Britain teetering on the edge of recession – while the crisis of high prices and the cost of living continues to affect millions of hard-pressed families.
But last week Mr Hunt had a streak of good news as inflation halved over the past year, prompting him to say the economy had “turned the corner” and fueling expectations he will unveil tax cuts on Wednesday .
With an eye on next year's general election, Tory MPs are particularly keen for Mr Hunt to focus on measures to help households cope and reduce the tax burden.
Rishi Sunak has done little to dampen expectations that Mr Hunt will unveil tax cuts later in the week, saying on Monday the government can now “responsibly start cutting taxes”.
The independent summarized what we could expect on Wednesday:
Mr Hunt has done little to ease expectations that he will cut business taxes in a bid to boost growth and fire up Britain's stuttering economy.
However, he was more cautious about previously reported claims he would use the autumn statement to cut income tax or national insurance.
He suggested during a round of interviews ahead of Wednesday's economic package that the tax burden on individuals would not fall “overnight” as he seeks to avoid another price hike.
Mr Hunt made it clear that his “priority is supporting British business” after promising an “Autumn Statement on Growth”.
“I think it's important for a productive, dynamic, vibrant economy that you motivate people to do the work, to take the risks that we need,” he told Sky's Sunday Morning with Trevor Phillips.
He did not rule out specific changes, including the more controversial ones to inheritance tax, saying “everything is on the table in an autumn statement”. He stressed that “lower taxation is necessary for economic development”.
Pressed on whether the high income tax burden could be eased, he stressed the need to act “in a responsible manner”.
“I want to show people that there is a path to lower taxes. But we also want to be honest with people, this is not going to happen overnight,” he said. “It takes a tremendous amount of discipline every year.”
Changes to inheritance tax
Mr Hunt is reportedly considering plans to cut inheritance tax, a move which would be hugely popular in his own party but would only benefit a small proportion of the public.
Inheritance tax is currently charged at 40 per cent on estates over £325,000, with an additional £175,000 for a main residence passed on to direct descendants. Mr Hunt is considering cutting it by 50%, 30% or 20%, the Times reports.
The Tories are then said to be considering making scrapping it entirely an election manifesto promise next year, which could cost £7bn a year in the short term.
However, the Institute for Fiscal Studies has predicted that the amount raised by the tax could rise to more than £15 billion by 2033.
Shadow chancellor Rachel Reeves said cutting inheritance tax was “not the right thing” now.
Asked on the BBC's Sunday with Laura Kuenssberg whether Labor would reverse any inheritance tax cuts the Conservatives might bring in, Ms Reeves said: “Inheritance tax cuts in the midst of a massive cost of living crisis and when public services are in position the knees is not the right priority.
“I understand people's desire to pass on to their children what they have worked hard for, but at the moment that is not the right thing to do and we would not support it.”
Only around 4% of deaths in 2020/21 resulted in inheritance tax being paid, with exemptions allowing many couples to pass on up to £1 million tax-free.
Cuts in benefits
The government has already announced a new welfare crackdown in what it says is a bid to get people back into work – but Mr Hunt could also squeeze the amount of money people receive.
Ministers have already announced that free prescriptions and legal aid for benefit claimants who are deemed fit for work and not looking for work will be stopped.
Ministers normally use the September figure for inflation when upgrading working-age benefits, which would mean a 6.7% increase.
But Mr Hunt did not rule out using October's much lower rate of 4.6%, which economists say would cut spending by around £3bn.
Asked about the potential move in an interview with the BBC, the chancellor said: “We will always be a compassionate Conservative government, but part of how we make our economy successful is making sure companies like this one can find the staff needed.
“Almost a million job vacancies across the economy, so we need to reform our welfare system.”
According to the Institute for Fiscal Studies, the savings will hit hard at working-age households on disability or means-tested benefits.
Sam Ray-Chaudhuri, research economist at the IFS, said: “Using October inflation instead of September to upgrade benefits will save the government money by cutting incomes for millions of working-age people on low incomes. Importantly, both effects will be permanent, regardless of whether or not the transition to basing annual benefit increases on October inflation is maintained or not in subsequent years.
“This means that actual benefit levels would not simply take several years to recover to their pre-pandemic values, due to the rather arcane method of raising them – they would never return to where they were, absent subsequent policy changes.”